Outlook 2017: Turkey at a Crossroads

After a difficult 2016, Turkey now finds itself at an economic and a political crossroads. The New Year is kicking off with political fireworks as Parliament debates constitutional changes that would empower the office of the presidency. These reforms would give President Recep Tayyip Erdogan a freer hand to rule, and extend his term limit as president through to 2029. All the while this fiery debate plays out, Turkey’s economy continues to languish and instability festers in the south and along the Syrian border. To say 2017 will be decisive is an understatement.

Another hard year for the economy? The Turkish economy is in bad shape. Real GDP shrank 1.8% over the third quarter, and projections for 2016 growth are in the 2-3% range. The government is projecting a rosy 4% growth for 2017. Even if the upper band of these estimates comes to pass, much of the growth is fueled by fiscal stimulus and deficit-fueled government spending. Deficit forecasts have recently ticked up from 1.3% to 1.6% in 2016, and 1% to 1.9% in 2017. The numbers may seem modest, but they’re coming as the economy is being pressured on all fronts.